SME Concerns about the Commission’s Case against Microsoft

Many Are Worried About What the CFI Decision Means for Them

The European Commission’s case against Microsoft is often described as an attempt to protect the David’s of the software world from Microsoft’s Goliath. The reality, however, is not so clear cut. The original complainants in the case – Sun, IBM, Oracle, RealNetworks, etc. – are some of the largest technology firms in the world. While some small firms are cheering the Commission onward and may benefit directly from the decision, many more are concerned about the direct and indirect effects this case may have on their businesses.

Most SME Software Developers Depend on New Functionality in Windows

A large platform such as Windows creates a kind of ecosystem for thousands of developers. While a few of these developers view Microsoft as a competitor, the vast majority view the company as an important supplier to their business. While adding to that ecosystem can be bad for a few companies, the benefits outweigh the costs far more often and consumers are the beneficiaries. For every dollar of MS revenue that Windows generates, seven dollars are generated by the other companies in the ecosystem.

Windows Media Player is More Than Just the Application that Users Interact With Every Day. The developers that build applications for the Windows platform depend heavily on Windows components like Windows Media Player and Internet Explorer that are built into the operating system. What is often overlooked is that these technologies are more than just the application that users interact with everyday. For example, printer drivers, graphical user interfaces, and network protocols such as TCP/IP all used to be technologies that developers had to license from 3rd parties but their inclusion into Windows (and all modern operating systems) have created a myriad of opportunity for the many while making competition harder and sometimes impossible for the few. More recently, the inclusion of internet access, HTTP and media functionality has meant that developers can focus on their area of expertise rather than on low level infrastructure functionality like communications.

Windows Media Player itself is based on functionality that software developers can integrate into their own programs without having to develop it themselves. This functionality can be used to develop completely new applications that integrate help videos, or distance learning applications. Products like Rosetta Stone, that you see in nearly every airport, are made possible by the media capabilities in Windows. It can also be used to develop products new competitive media players. For instance, the music services for Yahoo!, Wal-Mart, Musicmatch, and AOL all utilize some subset of this technology for their players.

Having this technology seamlessly integrated into Windows enables SME software developers to bring their technology to market more quickly, with a smaller download size, and less expensively. Today, software developers like Mindjet do not have to develop handwriting and pen recognition into their own software because they could reuse the technology Microsoft already implemented in its Windows Tablet operating system. The remedy in the United States preserves developer access to middleware technology while hiding access to consumers. The European Commission is forcing Microsoft to tear that code out and keep developers from being able to reuse it. This remedy benefits Microsoft’s largest competitors, but harms thousands of developers and millions of consumers.

New Functionality in Windows Gives Developers Instant Access to New Markets. For example, the inclusion of accessibility functionality in Windows means that many applications that would not be usable by the disabled community are now available to them with little or no additional effort on the part of the developer.

If the CFI upholds the Commission’s Decision , Windows Will Stagnate and Consumers Will Suffer. Many software developers are worried that if the CFI upholds the Commission’s Decision, it will essentially make the Commission the Chief Architect of Windows and innovation will grind to a halt. Microsoft spends billions on their research labs every year, and the new technology they integrate into Windows in the future can be leveraged by even the smallest software developer. Do we really want to prevent that because some other manufacturer of an inferior voice recognition solution complains to the EC? This could potentially make designing software for Windows more expensive than designing products for other operating systems and would harm all developers and users of the Windows operating system.

Innovative SMEs Can Go From the Garage to Market Dominance in No Time Flat

When the Commission launched its Investigation into Microsoft, Google was one month old and still being operated out of a garage. Today, Google is a worldwide phenomenon with a dominant share of the online search market and an antitrust case of its own to deal with. Skype helped to create the market for Voice of Internet Protocol (VOIP) technology and quickly obtained more than 90% share of that market. The lesson is that you don’t need to be big to develop a market leading product. Niche markets in particular can become dominated by SMEs quick quickly, especially if they have protected their intellectual property. While these companies may not seem dangerous to us, their competitors will not hesitate to ask the Commission to intervene if they think the Commission will listen. If the Commission gets its way, the precedents created will give them a lot of latitude in limiting the behaviour of any company with a dominant position regardless of what market they are in.

The Commission Isn’t Only Interested in Windows Media Player. They Want the Precedent that Gives Them the Right to Regulate the Design of Any Dominant Technology. While the Commission suggests that this case only affects Microsoft, Mario Monti was clear that he wanted a new precedent from this case that can be applied across the technology industry. For software start-ups, the idea of turning over the development of their products to Commission oversight is as painful a concept as it is for Microsoft. Every manufacturer needs the ability to improve their products for their customers. This is a basic tenant of customer service. Large or small, a precedent in which companies are blocked from improving their product to meet the demands of their customers would be bad for companies and consumers.

The Precedent Set By the Commission’s Seizure of Intellectual Property is Particularly Dangerous for SMEs. Many small firms build their market share because of their ability to protect their innovations through intellectual property. The Commission would like the CFI to give it the ability to simply seize a dominant player’s intellectual property and hand it over to the competitors, whenever the Commission believes that it might benefit competition. This seizure would undoubtedly limit incentives for successful firms to invest in new technological innovation. In the case of SMEs this could also translate into more difficulty in raising capital from the venture capital community.

While intellectual property is one way that large firms protect their investments in R&D, it is often the most important competitive tool that SME innovators have at their disposal. IP is critical to the company’s ability to raise capital and develop profitable partnerships with larger firms. If the CFI upholds the Commissions’ IP seizure, the value of intellectual property around the world will be negatively affected and that will undoubtedly harm SME innovators the most. If a precedent is set where a competitor can throw around a poorly defined buzzword like “interoperability,” and get an entitlement to years of research, it would be bad for the entire industry. However, it would be particularly bad SMEs.

Conclusion

The vast majority of SMEs in the software development and larger information technology industry have more to fear from the Commission’s case than to gain from it. The technology industry and particularly the SMEs that drive it, thrive on speed, flexibility and the protection of intellectual property. The Commission’s case would hinder all three of these core foundations for SME success. If the CFI upholds the Commission’s decision, the Commission’s heavy hand in the marketplace will clearly be bad for European companies and consumers alike.